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Singapore high-end properties losing its lustre

By 99.co

Singapore’s high-end property market took a beating in 2015 on the back of the Additional Buyers Stamp Duty (ABSD). The ABSD imposed an added 15 per cent tax on home prices for foreigners and this drove affluent foreign buyers to seek alternatives in the region – primarily Hong Kong and Australia. Along with a teetering global economy, this was expected to spell doom for the luxury property segment. But the search results and activity on 99.co suggests an alternative 

Current sentiments surrounding luxury properties

The overall view of Singapore’s luxury market remains negative for investors. A few signs of this are palpable: Luxury property prices have been in decline since 2013, interest rates are high and set to go even higher and, escalating fears among expats that their housing allowances will diminish.

Luxury property prices have been in decline since 2013

According to the Real Estate Developers Association of Singapore (REDAS) the prices of luxury property have declined by about 20 per cent from their peak in 2013. Cluny Park Residence, which fetched $3,100 psf in 2013, has fallen to about $2,600 psf (-16.1%). Newer high-end launches in 2014 such as Boulevard Vue on Cuscaden Walk fell from an average of $3,888 psf from its launch in 2014 to present values of about $3,200 psf (-17.7%).

One recorded sub-sale in April 2015 as stated on URA’s website, reflects a sale price of just $2,792 psf (-28.4%). The main cause of declining property prices has been pinned on the Additional Buyers Stamp Duty (ABSD), which imposes a 15 per cent additional tax levy on properties for foreign buyers. Foreigners now account for around 10 per cent of buyers in the Core Central Region (CCR), down from 20 per cent in 2013.

The worst hit area affected by the ABSD is Sentosa Cove – the only place in Singapore where foreigners can buy landed property without restriction and as a result, accounting the bulk of property buyers. In August 2015, 99.co reported that Sentosa Cove properties had already seen price declines of between 18 and 36 per cent from 2011. This decline is set to persist until the ABSD is lifted.

Our view on this remains unchanged. Overall, the decline in luxury properties has been almost impossible to ignore, and may continue to affect market sentiment.

High interest rates set to spiral

Singapore banks do not offer perpetual fixed rates for mortgages. While fixed rate loan packages do exist, the fixed rate term usually expires within a period of 3 to 5 years. This makes fluctuating interest rates a key concern.

Most residential properties are pegged to the Singapore Interbank Offered Rate (SIBOR), which is currently set at around 0.84 per cent. This is almost a 100 per cent increase since end 2014. The cause of this amelioration is the American Federal Reserve taking steps to normalise the United States domestic economy.

In the aftermath of the Global Financial Crisis in 2008, the Fed set interest rates to zero. This sent SIBOR rates to historic lows which fuelled Singapore’s property purchases. In December 2015 however, the Fed announced a rate hike of 0.25 per cent, with an eye toward gradual increases. This effectively marked the end of cheap property loans. While affluent owner-occupiers are seldom unfazed by rising interest rates, it is a disincentive to investors. Higher monthly repayments eat into rental yields, and diminish capital gains upon resale.

There is persistent fear of diminishing housing allowances for expatriates

The global outlook is negative due to weak economic data from China and the impact of unsustainably low oil prices. Coupled with rising interest rates, the situation is not boding well for businesses. Although not conclusively proven, it is a prevalent sentiment among investors that the luxury market will always be worst hit during a global downturn.

This is on the basis that housing allowances for expatriates will shrink, thus prompting a move from luxury properties toward mid-range properties in the rental market.

Is there light at the end of the tunnel?

Despite the apparently negative sentiment toward high-end properties, we have seen a recent surge of attention toward them.

On 99.co’s website, District 9 properties continue to top search results for both sale (accounting for 7 per cent of searches) and rental (accounting for 7.55 per cent of searches). District 9 in particular, has been receiving keen interest from many property watchers. With regard to rental properties and coinciding with URA’s rental transactions records,

District 9 remains the second most popular area for rentals, accounting for 10.43 per cent of rental transactions. The high volume of rentals, coupled with high view counts, suggest that expatriates continue to view the district as a desirable location to rent, regardless of the sluggish economy.

However, URA’s record of sales transactions for District 9 places it in 15th place, accounting for only around 3 per cent of total sales volume. The combination of high interest, coupled with a low number of actual purchases, suggest buyers are adopting a wait-and-see attitude. With prices consistently declining, buyers are waiting for the market to bottom out before making their move. 

We observe a similar trend with searches for Districts 10 and 11, third and second most searched districts respectively. Despite high levels of interest, these districts account for very few sales according to URA’s transaction records, with District 10 accounting for less than 4.3 per cent of sales volume and District 11 accounting for just 1.8 per cent.

Again, we surmise that interest in these high-end areas remains strong, and that buyers are simply awaiting further discounts or the amendment of the ABSD. The general sentiments of Districts 9-11 being the evergreen “safe” investment bets continue to prevail. The only truly dismal news for luxury property are homeowners of District 4 (Sentosa and surrounding properties near Harbourfront.) Low search results suggest weak interest, despite the steep fall in prices from 2013. URA results for rental and sales volumes in this district remain poor.

When to pull the trigger?

For property value-hunters, a key question is when would it be the best time to make the move? Experienced investors’ advice is to not wait for prices to start rising as an indicator, since that means it would be too late to find the best deals.

Instead, continual watching of listings and attending viewings to get familiarized with areas of choice, and keeping a look-out for fire-sale properties (often they may not be advertised so one would need to keep tabs via marketing agents). Once viewing volumes start to increase but before transaction prices and volume start to pick up, then that could be moment to consider purchasing

In conclusion, the luxury segment is only losing its lustre, for now. Current circumstances give buyers no reason to act yet. The current cooling measures such as the ABSD, were announced as temporary when they were first implemented, are still in place. Whilst buyers know that these measures will cease at some point, many are inclined to wait out this 15 per cent penalty, especially given that prices seem to keep declining in the meantime. Another advantage of the high-end property segment is that unlike its mass-market counterpart, it has less to fear from the potential supply glut of cheaper housing.

Rising availability of resale or new flats for example, is not a major concern for the luxury market as these units appeal to a completely different demographic.

Singapore’s luxury property retains its appeal to affluent buyers. The fundamental aspects that draw these buyers – transparent governance, high political stability, and low taxation, have not changed in the slightest. Any decline in the luxury property market here will be temporary as long as these fundamentals remain in play.

99.co is a Singapore-founded startup and property portal which offers cutting-edge technology that enables consumers to seek pertinent knowledge found nowhere else, and data in real time.